2 Undervalued Stocks That Just Raised Dividends

While the overall stock market has charged back from its April lows, dividend stocks have again lagged. But this offers opportunities for long-term investors to pick up income-paying stocks at attractive prices.

Dividend investing comes in various forms. Investors can look for stocks with the highest yields, those with a history of stable dividend payouts and strong finances, or those raising dividends. Each month we screen for US stocks covered by Morningstar that have increased their quarterly dividends, which can signal a company’s confidence in its future finances.

Here are two undervalued companies covered by Morningstar analysts that increased their dividends in June:

• Sun Communities SUI
• UnitedHealth Group UNH

Screening for Undervalued Stocks That Raised Dividends

We started with the full list of US-based companies covered by Morningstar analysts, then looked for those that pay a quarterly dividend and declared a dividend payment in June. We tracked changes from previous dividend payouts and filtered for companies that saw a dividend increase of 2% or more to capture the most substantial changes. Stocks with dividend yields under 2% were excluded. Lastly, we picked companies rated 4 or 5 stars by Morningstar analysts, meaning they are considered undervalued.

These stocks offer investors the potential to benefit from increased dividend yields and the possibility that their investment values will grow. Two companies made it through the screen. A full list of stocks covered by Morningstar that raised dividends in June is at the bottom of this article.

Sun Communities

• Morningstar Rating: ★★★★
• Fair Value Estimate: $155.00
• Fair Value Uncertainty: Medium
• Economic Moat: None

“We assess the company’s capital return strategy as appropriate, as Sun Communities has averaged a dividend payout ratio of 61% of core funds from operations over the past several years. While the payout ratio reached a low point in 2022 as the pace of dividend growth did not keep up with the pace of core FFO growth during the pandemic, recent increases to the dividend paid have raised the ratio and we anticipate that Sun will return to the historical payout average in 2025 and will thereafter grow in line with the company’s operating cash flow growth.”

—Kevin Brown, senior equity analyst

UnitedHealth Group

• Morningstar Rating: ★★★★
• Fair Value Estimate: $473.00
• Fair Value Uncertainty: High
• Economic Moat: Narrow

“UnitedHealth also distributes cash to shareholders appropriately, in our opinion. It typically pays out around 30% of its profits in dividends each year, and we expect a healthy payout ratio to continue, although the dividend may not grow until its earnings power and growth trajectory are assured. It also repurchases shares regularly, which can add to bottom-line growth on a per share basis. Given recent share prices below fair value, UnitedHealth may even be able to create a bit of intrinsic value in the short term versus its historic pattern of buying above or near fair value, too. However, given the uncertainty around its ongoing cash flows, we would not be surprised to see the firm hoard cash for the near future.”

—Julie Utterback, senior equity analyst